Value Added Tax (VAT/ Sales Tax)

A value added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution. However, it is different from the sales tax because a sales tax is levied on the total value of the exchange. VAT is neutral with respect to the number of passages that there are between the producer and the final consumer.

Value Added Tax is a multi point sales tax with set off for tax paid on purchases. It is basically a tax on the value addition on the product. The burden of tax is ultimately born by the consumer of goods. In many aspects it is equivalent to last point sales tax. It can also be called as a multi point sales tax levied as a proportion of Valued Added.

India does not have a typical Value-Added Tax (VAT) structure. Instead, separate tax on sale of goods and on rendering of services is imposed under different legislations pertaining to different states of India. Sale and purchase of goods is subjected to charge of sales tax. Sales tax is levied under Central and State Sales Tax legislations depending upon the movement of goods in pursuance of a sale transaction. If the transaction involves movement of goods from one state to another (inter-state), the tax is levied under Central Sales Tax Act (CST), 1956.